{"title":"Private Information and Currency Returns: A Corporate Investment Connection","authors":"Steven J. Riddiough, Huizhong Zhang","doi":"10.2139/ssrn.3711715","DOIUrl":null,"url":null,"abstract":"We uncover a novel source of predictive information, originating from the announcements of cross-border mergers and acquisitions (M&As), that forecasts economic acceleration and currency returns. Consistent with the announcements revealing firms' private expectations about economic fundamentals, we find that a country's economic growth accelerates, and their local currency appreciates, following months in which their announced cross-border M&A net inflows are abnormally high; while the opposite outcomes are observed following abnormally high M&A net outflows. The predictability captures reversals in economic acceleration and is driven by the acquisition decisions of domestic firms. A currency portfolio that exploits the predictability is found to generate a Sharpe ratio of over 0.70 and to offer large diversification gains to global currency investors.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0000,"publicationDate":"2021-06-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"PSN: Exchange Rates & Currency (Comparative) (Topic)","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/ssrn.3711715","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 0
Abstract
We uncover a novel source of predictive information, originating from the announcements of cross-border mergers and acquisitions (M&As), that forecasts economic acceleration and currency returns. Consistent with the announcements revealing firms' private expectations about economic fundamentals, we find that a country's economic growth accelerates, and their local currency appreciates, following months in which their announced cross-border M&A net inflows are abnormally high; while the opposite outcomes are observed following abnormally high M&A net outflows. The predictability captures reversals in economic acceleration and is driven by the acquisition decisions of domestic firms. A currency portfolio that exploits the predictability is found to generate a Sharpe ratio of over 0.70 and to offer large diversification gains to global currency investors.